ICBC Macau: Fed’s mild steps unlikely to impact Macau

The Industrial and Commercial Bank of China (Macau) Ltd.
said it expects minimal impact on the city’s interest rates and mortgage plans in light of the possibility of modest policy tightening by the US Federal Reserve on interest rates starting later this year.
‘We expect that the Fed may increase the interest rate 0.25 per cent in December this year. Next year, the Fed is forecast to increase the interest rate two to three times at 0.25 per cent pace,’ the risk management department of ICBC Macau remarked to us.
‘The Hong Kong and Macau banking industry may not increase interest rates right away following the Fed decision. The interest rate change impact will be minimal if the interest rate is increased in line with market forecasts,’ ICBC Macau said when asked of the likely impact on interest rates and mortgage plans here.
Macau’s mortgage rate is in lockstep with interest rates in the United States as a result of the currency peg between the pataca and the U.S.
dollar.
The rock bottom prime rate that Macau sees now has resulted from the US’s down-adjustment of interest rates in 2008, as the latter has begun pulling out the quantitative easing policy to stimulate the crisis-stricken economy.
‘Since we are still in a low interest rate environment and interest rates are expected to rise slowly, we have not seen our clients’ demand for home mortgage significantly affected by anticipation of rising interest rates,’ ICBC Macau remarked to us.
Rose Lai Neng, professor of finance at the University of Macau, also remarked that the city’s slowing economy and gaming downturn are much stronger factors contributing to the downward pressure currently seen in home prices than the anticipation of rising interest rate.
The US Federal Reserve kept interest rates unchanged on Thursday in a nod to concerns about the global economy, financial market volatility and sluggish inflation at home. In what amounted to a tactical retreat, Fed Chair Janet Yellen said developments in a tightly linked global economy had in effect forced the US central bank’s hand.
But the Fed maintained its leaning towards a rate hike some time this year, while lowering its long-term outlook for the economy.
Fresh economic projections showed 13 of 17 Fed policymakers foresee rising rates at least once in 2015, down from 15 at the last meeting in June.
Traders in futures markets cut bets that the central bank would lift rates by December to around a 47 per cent probability, from 64 per cent before the release of the policy statement.
Four Fed policymakers now say rates should not be raised until at least 2016, compared to two who felt that way in June. The Fed has policy meetings in October and December.
In deciding when to hike rates, the Fed repeated it wanted to see ‘some further improvement in the labour market,’ and to be ‘reasonably confident’ that inflation will increase.
with Reuters